Andrew Chen (AngelList, Dropbox, etc.) on Acquisition and Retention

Last week, GrowthHackers.com hosted an AMA with Andrew Chen. Andrew has worked as an advisor/investor for startups including, AngelList, AppSumo, Barkbox, Dropbox, Qualaroo, ZenPayroll and others. Besides from his various roles, Andrew frequently posts on his blog, http://andrewchen.co/

I recommend that you use your brain, first and foremost, to think about growth

A big topic in this AMA was the tactical part of growth hacking: where the easy wins are and how startups can explore these. His answer was simple and to the point: growing is not about one fantastic tool, but about getting an understanding the user and the product. “Most people think of growth as a bunch of tactics, rather than a deep aspect of your product strategy. They tend to lump stuff like PR or traditional marketing activities into “growth” when I think of the former as marketing.”

Andrew Chen elaborated on some of the general misconceptions around growth: “Firstly, thinking that growth consists of silver bullet hacks, rather than a systematic approach that requires careful thought. Secondly, not having product/market fit, and thus no growth, but thinking that the problem is that the product hasn’t been optimized enough. Thirdly, people getting all their knowledge about growth from reading blogs, rather than actually doing the work, running the experiments, and building great products.”

Andrew Chen

Despite highlighting the product/market fit, it is not always enough. “Just because your product works well for customers doesn’t mean that you can produce it profitably, or scale it profitably, or that your investors/cofounders won’t screw you over, or many other bad things that afflict startups.”

After all, growth comes down to understanding the customers and your product rather than any single trick. “I recommend that you use your brain, first and foremost, to think about growth. It’s more about learning, talking to people, and practice, over using a specific set of tools – those tools always change over time.”

People don’t travel often, but when they do, Airbnb makes so much money the whole marketplace works

On User Acquisition

Many aspiring growth teams looks to the likes of Facebook, Skype and other commonly used companies when looking for inspiration, but that can be dangerous. “Traditionally, virality works best for high-frequency, high-retention products like social and communication. That’s why Skype, Hotmail, Facebook, and others are so great. They are inherently viral products.” The lack of viral growth leaves startups with two levers for growth: user acquisition and retention.

Longer term, the easy stuff has already been done and you have to do the bigger projects with bigger payoffs and deeper user value

User acquisition is expensive and most cash-strapped startups often look to retention as the best way to get the most out of their marketing investments. However, many business models may not necessarily be suitable for high retention, if for example the use of the product is very infrequent. The first suggestion is to ensure the transaction value is large enough for each transaction.

”Airbnb is like this. People don’t travel often, but when they do, Airbnb makes so much money the whole marketplace works.” The second option involves adding value a bit further down the customer journey to secure a longer relationship: “build in more workflows and try to become more useful in the day to day. There’s a new category of products called “Market Networks” that’s worth looking at, which is the idea, which keeps people engaged as they use the product over time.” (Market networks is the idea of combining elements of networks and marketplaces based on user profiles to provide customized offerings to the individual. Read more here).

The Early Days

Most startups haven’t got the size or scale of Airbnb and for them, prioritization is a big topic as they face daily dilemmas on how to best spend their time. To them, Andrew Chen provides some advice as well: Most companies follow the same logic as they mature.

“In the early days, when your product is relatively unoptimized, you tend to go for the easy stuff since it’s pretty deterministic. If you’ve never tried testing your new user funnel, or chopping down the number of steps, you might as well do that. Longer term, the easy stuff has already been done and you have to do the bigger projects with bigger payoffs and deeper user value.”

Even as a startup with a limited budget there are still many opportunities to attract users, but the key to growth is to understand the user flow and your product. When asked about how to develop the viral loop of apps, his answer was short and concise: “Wireframe all the steps in your viral loop, put it on a spreadsheet, and measure the real numbers. Fix the holes, and repeat.”

Nail the product experience rather than worrying about little tactics they can use

Elaborating on the need for data, Andrew Chen went on about the difficulties in controlling growth and offered his advice on how to handle this the best.

“[It] is an important problem because board discussions tend to happen at the level of aggregate statistics – which we’ve gotten smarter about as an industry (MAU, churn rates, etc.). But inputs imply that you also have to convey the model for how growth happens, and these inputs will be hard to compare to other industry benchmarks that are readily available. Ultimately, it seems like you still have to talk through the stuff where people can talk about comps, but also break that down into a small number of inputs so that the team knows what to focus on. Hard problem when investors can have ADHD and just want to talk about the big easy numbers.”

Final Remarks

Before finishing off, Andrew Chen had some encouragement to the many entrepreneurs fighting with early stage problems:

“Folks who are working on pretty new products, just need to nail the product experience rather than worrying about little tactics they can use. “

“This is all industry shorthand/jargon, after all. You could say a company like Netscape “failed” since it was “crushed” by Microsoft, but it was still sold for $5B and everyone made lots of money. That’s kind of an aside.”